Mortgage Miss-selling

You may be struggling with your mortgage or you may feel in hindsight that, whilst affordable, your mortgage is not the right one for you.

You may have been mis-sold your mortgage. Simply because you discussed some of the options available and were advised of monthly payments does not mean that you were properly advised. Going through a ‘tick box’ exercise is not enough. Mortgage advisers have to go a lot further than that.

The sale of mortgages is a very complex area. It will probably be the biggest financial commitment of your life. As a customer, you are entitled to expect a very high standard of care from your mortgage adviser.

Mortgage advisers need to make a living and lenders need to make a profit. The temptation for a mortgage to be sold to you on the basis of what generates the best commission for a broker or makes the greatest profit for a lender is great.

Between 2006 and 2008 around 4.3 million mortgages were sold. The FSA has been raising concerns over the way in which mortgages were sold.

We will be able to advise you whether you have a potential claim against your mortgage adviser, whether you dealt with a broker or directly with a building society or bank. Call us on 01744 755800 and ask to speak to one of our solicitors in the financial mis-selling department for some initial free advice. If we don’t think that you have a case, there is no charge for the advice given. If we think that you may have a claim, we’ll discuss how your case can be funded and explain the procedure involved (don’t worry – we operate on a ‘no win, no fee’ basis so you will not be asked to pay anything unless your case is successful and you will know in advance how much is likely to be deducted from any compensation that you receive).

What do the rules say?

In the area of mortgages and home finance, the Financial Services Authority (the ‘FSA’) has a ‘Conduct of Business Sourcebook’ (‘MCOB’).

If you have been sold a mortgage, the adviser, broker or bank should have complied with the standards set out in MCOB.

If rules contained within MCOB have been breached, you may well have a claim for damages.

One of the most fundamental requirements contained within these rules is that the lender must be satisfied that the customer has the ability to pay.

The FSA regards it as important that customers should not be exploited by firms that lend in circumstances where they are “self-evidently unable to pay through income and yet have no alternative means of payment”.

It is not enough that the customer thinks that they can meet monthly payments and is happy to go ahead – the onus is on the lender to comply with the MCOB rules to ensure that the customer can actually pay.

Some people may feel that the customer should know what they can pay and that they are to blame for getting themselves into debt. It is not that simple. They probably should not have been lent the money in the first place by the irresponsible lender. Remember that lenders make a profit from mortgages – they are not doing the customer a favour. Lenders cannot act irresponsibly in their pursuit of profit. It is human nature to want to buy your home or to ease your short term financial position and lenders should not exploit that.

We all know about the consequences of irresponsible lending. There are many different theories behind the collapse of so many economies around the world but it is commonly agreed that one of the root causes was the ‘sub-prime’ mortgage market imploding. In essence, lenders were happy to provide mortgages to customers who were not realistically in a position to pay. The practice was so widespread that it led to chaos in the financial markets when so many customers inevitably defaulted and the level of bad debt grew out of control.

Examples of mortgage mis-selling

There are many different ways in which financial products may have been mis-sold. The examples given below do not cover every different scenario so if you don’t fall into any of the categories below, it will still be worth contacting us to discuss matters.

Have you been sold a ‘self-certified’ mortgage?

The advantage of a self –certified mortgage is that if you have difficulty in proving your income (usually if you are self-employed and do not have tax returns or accounts to produce if you have only been self-employed for a relatively short period of time), you can certify yourself how much you earn without having to have independent evidence to prove your income. The drawback of this type of mortgage is that the rate of interest is generally higher (because of the greater risk to the lender in relying on the customer declaring what their income is).

If you were an employee (ie you were not self- employed) and could have had your salary verified by your employer, you should not have been signed up to a self-certified mortgage. You should have been able to have had a mortgage at a lower rate of interest.

If you were self –employed but could have shown what your income was by producing accounts or tax returns, you should not have been sold a self-certified mortgage.

Have you been sold a mortgage that will continue into your retirement?

If your mortgage will continue beyond your retirement date, you will still need to have sufficient income to meet your monthly payments from your pension or other income. If you will not have sufficient income to meet that cost, you may have been mis-sold your mortgage.

Were you sold an ‘interest only’ mortgage?

If you were, you should have been advised to have some type of policy in place to pay off the capital sum at the end of the mortgage term. Throughout the life of the mortgage, you will be paying interest only and the amount of capital that you have to pay off will remain the same. You may for example be paying interest for 25 years and at the end of that period you will need to find a substantial amount in one lump sum to pay off the mortgage. In some cases, unless you have an investment that matures at the end of the mortgage period, you may have to end up selling your home

Did you take out a mortgage to pay off debts or to ‘consolidate’ your debts?

It can appear attractive to reduce your monthly outgoings by taking out a mortgage to pay off your existing borrowings and convert to one monthly lower sum. However, your adviser should have gone into great detail with you about the pros and cons of doing so. You need to adopt a long term view when it comes to refinancing your outgoings. A re-mortgage may seem like an appealing ‘quick fix’ but not if it leaves you paying off much greater amounts in the long term. To make matters worse, if your debt consolidation means that your debts are now secured over your home, the consequences of falling behind with your payments are much more serious as you may of course lose your home.

Were you provided with a fixed rate mortgage? If so, what did your monthly payment change to after the fixed rate period came to an end and are you in a position to afford that payment?

It is important that consideration was given to other ways of managing your debts. Whilst it may not have earned commission for the broker or building society, was any suggestion made about extending the terms of your existing loans on an unsecured basis rather than taking out a mortgage over your home?

To give you an example, an unsecured loan with 3 years to run could have been converted to a 5 year loan at a reduced monthly amount. Although you would have ended up paying more on that loan over 5 years, it would still be better than committing to having a secured loan over an even longer period of time at much greater long term cost.